Chancellor orders emergency inquiry to cover scandal

Gordon Brown ordered an emergency investigation yesterday into whether Britain's financial markets could be hit by a scandal similar to that which brought down the American giant WorldCom.

Amid growing alarm over the global impact from the crisis facing corporate America, the Chancellor announced a top-level working party would examine as a "matter of urgency" the implications of the collapse for the City.

It has been told to submit a report to the Government within a month.

The working party includes Ruth Kelly, the Economic Secretary to the Treasury, Melanie Johnson, a Trade and Industry minister, and Sir John Bourn, the head of the National Audit Office.

It was set up in February in response to the failure of the US energy giant Enron.

But Mr Brown told the Cabinet yesterday that its remit had been widened as soon as the fall of WorldCom emerged.

The Chancellor said that Britain's regime of financial regulations had been strengthened over the past five years but there was "no room for complacency", while Patricia Hewitt, the Secretary of State for Trade and Industry, added that this country's auditing rules were better than those found in "some other parts of the world".

The Prime Minister's official spokesman said: "It is in the interests of business as a whole that everything that can be done is being done to ensure that investor confidence is protected."

He also pointed out that Derek Higgs, a former investment banker, was appointed after the Enron collapse to examine the role of non-executive directors in UK companies.

Ms Kelly told The World at One on BBC Radio 4: "The recent corporate collapses and events in the United States mean we have to take auditing and accounting issues extremely seriously.

"Clearly we do have different systems in the United Kingdom, but I think we would be irresponsible if we didn't take issues such as Enron and the collapse of WorldCom seriously," she added.

The City remained nervous yesterday over the threat of further accountancy scandals, with the FTSE 100 index recovering only nine points after heavy falls earlier in the week.

President George Bush spelt out his fears over the wider reverberations of the massive fraud uncovered at WorldCom.

"I'm concerned about the economic impact of the fact that there are some corporate leaders who have not upheld their responsibility.

"If you are a responsible citizen and you run a corporation in America, you must fully disclose all assets and liabilities, and you must treat your shareholders and employees with respect," the US President said during the Group of Eight meeting of the leaders of the world's richest countries, taking place in Canada.

Speculation is also mounting in the United States that a number of WorldCom staff could have been involved in the fraud. Paul O'Neill, the Treasury Secretary, said: "It was not possible for [it] to be done by one individual."